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The original version of this article was published circa 2000 when intenet banking was in its infancy. It is re-published here in updated form, not to highlight the internet as a new opportunity any more (as predicted, internet banking has proved to be immensely popular and hugely cost-effective for banks) but because the SRI research on which it is based is still relevant to the launch of new technology-based services by banks.

How many people use Internet banking? What sort of people are they? And what marketing approach will attract the most users? Research from SRI's Consumer Financial Decisions (CFD) programme in the mid 1990s throws an interesting light on these questions for US consumers.

The SRI research was based on a large, regular survey of US financial consumers, combined with a sophisticated methodology which enables fairly reliable prediction of potential as well as actual users of home based financial services (on-line banking and investment). As shown below, the actual number of users grew rapidly over two years to about 15% of US households. But at the same time the number of potential users also grew – in fact the gap between the two stayed fairly constant.

Millions of US Households

1996

1998

Actual Users

6M

17M (15%)

Potential Users

11M

27M (24%)

Although the penetration was still quite low, the customer base was highly attractive in banking terms – on-line users tend to be richer, younger and above all better educated. In terms of SRI's VALS psychographic typology, there is a huge over-representation of "Actualisers", the most resource-rich type.

The SRI researchers identified three important market segments amongst actual and potential users:

Early Adopters – attracted by novelty and sophistication, these are the easiest consumers to attract.

Followers on Need – consumers who are familiar with technology but only medium level financial needs.

Followers on Skill – consumers with high levels of financial need but low levels of technology skill.

The challenge for banks is to attract these follower segments. Only in this way will they narrow the gap between actual and potential use. But the two segments are quite different. Followers on Need want simple, convenient products. Followers on Skill will require much more hand-holding, and reassurance about security, for example. In terms of a virtual value chain analysis, banks need to create distinctly different Contexts for the two groups.

It seems that, in mid 1990s US at least, the banks had failed to exploit the substantial increase in technology skill that had occurred across all segments, as shown by the following chart which illustrates migration between segments, 1996 to 1998:

Intriguingly, the SRI research found that ageing baby boomers with small children tended to be the best prospects for home based financial services. Why should this be? The SRI explanation was as follows. These people have tended to put off having children while they further their careers. They are therefore relatively rich with complex financial needs, and are likely to have been exposed to PCs at work, and moreover, they tend to have PCs at home for the young children. Simple really!

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